Foreword
Having a reputation
for zero tolerance of
corruption will be a
distinguishing asset for
a defence company

Corruption threatens all nations and
companies. The issue increasingly dominates daily headlines and public debate
around the world. Companies are often well
aware of the financial, legal, and reputational consequences of corruption â&#x20AC;&#x201C; fines,
loss of public trust, reduction in stock price,
blacklisting, and even prison. Yet, to the
despair of many trustworthy people working
in the sector, defence has maintained a
reputation for dishonesty and corruption.
But there is also a major opportunity.
Those defence companies that do take the
subject seriously have the chance to be seen
by their government clients as better
companies with which to do business.
As governments toughen their attitudes
towards corruption, having a reputation
for zero tolerance of corruption will be a
distinguishing asset for a defence company.
Ignoring both the risk and the opportunity
is poor business strategy.
Collaborating with Transparency
International UKâ&#x20AC;&#x2122;s Defence and Security
Programme since 2006, I launched the
Common Industry Standards â&#x20AC;&#x201C; an initiative
that led to the first Europe-wide set of
standards to tackle the practice of bribery
among defence companies. This same
initiative led to the creation in 2010 of
IFBEC, a global defence industry forum for
raising business conduct standards among
defence companies. It is clear that there is
an appetite for change in the industry.

With this ground-breaking study, Transparency International UK is encouraging
companies to move a step further. This
comprehensive analysis of the major defence
companies from all over the world examines
what systems and processes they have in
place to prevent corruption, based on the
information available. Its purpose is to raise
standards globally, promote good practice in
preventing corruption, and increase transparency in the sector. I very much hope that the
industry responds to the challenge.

Executive Summary
The purpose of this study
is to assist industry-wide
improvement in reducing
corruption in international
defence sales.

www.defenceindex.org
www.ti-defence.org

Corruption in
defence is
dangerous,
divisive and
wasteful.

The defence sector is crucial to a country’s
security, and yet has a reputation for secrecy
and corruption. News stories about corruption
in defence deals appear regularly in the news
in many countries. This must change.
Corruption in defence is dangerous,
divisive and wasteful. It puts international
security at risk; it can lead to regional arms
races to satisfy the greed of intermediaries;
and billions can be wasted in dishonest
arms deals. This reputation has a detrimental effect for companies and governments
alike, much to the frustration of the many
honest people working in it.
What the news stories often don’t tell is
what defence companies are – and are not
– doing to combat corruption. At a time of
increased scrutiny by governments and
citizens alike, it is very much in a company’s
interest to prevent corruption, and how it
does this will increasingly become a
competitive advantage. This report looks
into what defence companies currently do
and fail to do to prevent corruption. The
purpose is to assist in raising anti-corruption
standards across a major sector that is
global in nature yet whose business has
historically been hidden from public view.

The 129 companies analysed in this study
are those with the greatest defence revenue
from the six largest arms exporting nations,
plus the largest defence companies from a
further twenty-five countries. Together,
these companies account for over USD 500
billion of global defence revenue, and USD
11 trillion of total revenue.1 The defence
sector by nature is complex and diverse –
companies in this index include traditional
arms manufacturers as well as consultants,
technology providers, logistics specialists
and construction firms.
The companies are scored on 34 questions
that inquire into the specifics of the ethics
and anti-corruption systems they have in
place. The information used to compile the
Index is drawn from what companies disclose
publicly on their websites about their
anti-corruption systems.
Transparency International UK also invited
all the companies to present evidence about
their anti-corruption practices to supplement
what could be found publicly. Thirty-four of
the companies provided such information,
sharing material from internal company
sources. The report presents the results for
these companies on the basis of both
publicly available information and how they
would have scored if they made public the
additional internal evidence.

4

Executive Summary

Two thirds
of defence
companies do
not provide
adequate
levels of
transparency.

Executive Summary

Results based on public
Information only

Results based on both INTERNAL
and PUBLIC information

Ten companies score in the top two bands.
Fluor Corporation is the only company to
score in Band A. In Band B are Accenture,
BAE Systems, Fujitsu, Hewlett-Packard
Company, Meggitt, Northrop Grumman
Corporation, Serco Group, Thales, and
United Technologies Corporation.
These companies publicly demonstrate
in considerable detail the systems and
procedures that they have in place to
prevent corruption. This is to their credit,
and demonstrates clearly that there is no
confidentiality or secrecy barrier to good
public disclosure about anti-corruption
in the defence industry.
However, this group represents less
than ten per cent of the companies studied.
Two thirds of defence companies do not
provide adequate levels of transparency.
Almost half of the total – 60 out of 129 –
provide very little evidence of having basic
systems in place to prevent corruption and
instil strong ethical values, scoring in Bands
E and F. This includes companies from all
the major arms exporting nations: USA,
Russia, Germany, France, the UK and China.

The thirty-four companies that provided
internal information on their anti-corruption
systems are predominantly companies that
rank reasonably well on the basis of their
public disclosure only: 28 of the 34 are in
Bands A to C in the public-information
ranking, with just six in Bands D and E.
The inclusion of company-internal
information would have improved the
company results on average by one to two
bands, with almost half of the 34 moving
up to Band A. The improvement is mostly
due to additional disclosure in two specific
areas: in how they assess the risk of
corruption (e.g. in business decisions, in
geographical scope, in particular product
sectors), and in how they train staff on
ethics and anti-corruption measures. There
is little impact of internal information in
respect of the three other areas – Leadership practices, Codes and policies, or
Personnel practices.

D
19%

E
10%
A: 1 Company

C

26%

37%

1%
A

B: 9 Companies
C: 34 Companies
D: 25 Companies

7%
B

F

E: 13 Companies

129 Companies

F: 47 Companies

5

Good and bad practice

ACTIONS

The detail of this study provides numerous
examples of good practice from which all
companies can learn. Several of them can
serve as best practice across the defence
sector as a whole. Perhaps the best practice
of all, and the most convincing to us as a
civil society organisation, is that there are
defence companies who have instituted a
practice of regular assessment of their total
ethics and compliance programme by an
independent organisation (such as a law or
accountancy firm) and who have committed
to publishing the assessment in full.
ThyssenKrupp AG and BAE Systems are the
only two defence companies in the survey
that we are aware of who commission such
external assessments and make them
publicly available.
It is also striking how bad practice is
increasingly obvious when compared with the
good examples. There are three main culprits.
• Legal jargon: There are many Codes
of Conduct that focus on legal compliance
and use legal jargon that may make them
difficult for employees to find useful, or
even intelligible. This could be a product
of lawyers having drafted most of the
anti-corruption programme.
• “Box-ticking: ”The tone of the whole
ethics and compliance programme – all the
way from the CEO statement in the Annual
Report through to detailed policies – is written
in a style that lacks any conviction. This
“box-ticking” style is immediately obvious to
the interested reader, and it is likely this is
also obvious to the company’s employees.
• Lack of transparency: The fact that
90 per cent of the companies have little on
their websites about ethics and anti-corruption speaks for itself. That this number
should include so many companies who
are major global players is an extremely
disappointing result.

The Chief Executives of defence companies
worldwide are the principal audience for this
report. The following are four immediate
actions they can undertake to implement
good ethics and anti-corruption systems:
1. Review your company’s ethics and
anti-corruption systems, comparing them
with the results of this study. Require that
an improvement plan be put in place and
review progress at main Board level. Review
the information disclosed publicly by your
company so that your commitment is clear
to all. We suggest you aim to provide
‘Band A’ level disclosure.
For the 85 companies in Bands D to F,
analyse why your company demonstrates
such limited evidence of ethics and compliance systems, and insist that substantive
improvement plans be put in place.
2. Commission an independent external
organisation to assess annually your
company’s total ethics and compliance
systems, and commit to publishing the report.
3. Speak up for industry-wide improvements in ethics and compliance standards
in the defence sector. There is much scope
for more visible external leadership and for
multi-country collaboration. Actively support
IFBEC, the new global defence forum for
good business and ethical conduct, and
make it the leading sector example of
pro-active corporate behaviour.
4. Commit your company to engage with
stakeholders who promote transparency and
accountability of the defence sector. Be
active in the next phase of this study. Ensure
that your Heads of Ethics and Compliance
participate fully, and that progress is
regularly presented to your Board.
This report also makes recommendations
for Government Defence Procurement
Chiefs, who can constructively use this
information to demand higher anti-corruption
standards from bidders; and for institutional
investors and civil society, who both for too
long have hesitated to engage with corruption
issues in the defence sector.

6

The Study

The Study

7

The Study
Our intention is to
provide solid data
through which all
defence companies
can embed
zero tolerance
of corruption.

Transparency International UK (TI-UK) has
been working to improve anti-corruption
standards in the global defence industry
since 2004. Part of our mission is to
facilitate new industry initiatives and
advocate action on key defence corruption
risks. Governments and companies
repeatedly ask what constitutes good
practice. This study is part of answering
that question. For a comprehensive
explanation of the methodology and
questionnaire, please visit the Defence
Companies Anti-Corruption Index website
at http://www.defenceindex.org
THE QUESTIONNAIRE:
The questionnaire comprises 34 questions.
These are organised into five pillars:
1) Leadership, governance, and organisation; 2) Risk assessment; 3) Company codes
and policies; 4) Training; and 5) Personnel
and helplines. The questions cover what
TI-UK regards as the basic capabilities that
a global defence company should have in
place. Each question is assessed against
a ‘model answer’, which represents a full
response. The model answers were
reviewed and clarified during the study to
ensure consistency across companies.
SOURCES OF INFORMATION:
The information to answer these questions
should be, in TI-UK’s view, available on the
company’s website as a matter of good
practice and public accountability. TI-UK
collected all data by desk research between
January and July 2012. The sources included
company websites and the relevant links and
documents directly accessible through them.
Typical documents included annual reports,
social responsibility reports and corporate
governance sections of the website.
Thirty-four companies also provided
additional internal information about their
anti-corruption systems and practices.
Companies were under no obligation to do
so, but TI-UK had hoped that – in the spirit
of raising standards across the industry –
more would participate. The reasons that
some companies did not choose to provide
further information varied: some did not
want to share confidential information with

TI-UK; some said they did not have the time
to respond; and some had concerns about
TI-UK’s work quality or methodology.
THE PROCESS:
TI-UK used readily available public information to assess companies against the 34
questions. The draft analysis was then sent
to the company for comment: this was the
company’s opportunity to guide TI-UK
towards other publicly available information
that may have been missed, and/or to
provide additional internal information. The
results of the assessments for companies
based on public information are presented
in our index and discussed on pages 8-13.
Where companies provided internal
information, TI-UK reviewed and discussed
the documents with the company. The
results of this exercise, showing the impact
of this information, are presented separately
on pages 14-19.
Once all assessments were completed,
they went through internal and external peer
reviews, after which the companies received
a copy of the finalised assessment. They
were also given an opportunity to make any
further statements should they wish to, and
these are available on the Index website.
All companies that did not respond were
contacted multiple times, by letter, email
and telephone. The findings are based on
information gathered between January and
July 20, 2012, and therefore do not take
account of any changes made by individual
companies thereafter.
THE COMPANIES:
Most of the companies included in this study
lie within the group of top 100 global defence
companies, as measured by defence revenue
in 2010. In addition, in order to have a truly
global range of companies, we added
companies that were of an arms-exporting
nationality that were not within the top 100,
but which nonetheless had either actual or
estimated revenue of at least USD100 million.
This resulted in a final population of 129
companies from 31 countries.

Of these, 34 provided additional companyinternal information and engaged in detail
with TI-UK. The companies were:
BAE Systems, Bechtel Corporation, Boeing,
Chemring Group, CSC, Cubic Corporation,
Daewoo Shipbuilding & Marine Engineering,
Day & Zimmerman, Diehl Stiftung, DynCorp
International, FLIR Systems, Fluor Corporation, Fujitsu, General Electric Aviation, Harris
Corporation, Hewlett–Packard Company,
Honeywell International, Indra, Jacobs
Engineering, KBR Inc., Kongsberg Gruppen
ASA, Lockheed Martin, Meggitt, Mitsubishi
Heavy Industries, MTU Aero Engines GmbH,
NEC Corporation, QinetiQ Group, Raytheon
Company, Rockwell Collins, Saab AB, SAIC,
Serco Group, ThyssenKrupp AG and
Tognum. Four further companies wished to
provide internal information but were too
late to be able to be included. These were
Accenture, Aselsan, Rafael Advanced
Defense Systems and Rheinmetall.
THE SCORING:
The companies are scored on the 34
questions, and then placed into one of six
bands, from A to F, based on their scores.
Band A or B mean that we have seen
plentiful or good evidence that basic ethics
and compliance systems and processes
exist. Bands E and F represent scores from
33 per cent down to 0 per cent, indicating
there is only poor or no evidence of anticorruption processes. Bands C and D are
intermediate results – either because of
a mix of good and poor evidence across
the index questions, or because of more
uniformly average evidence.
Band Lower % Upper % Evidence of at
Score Score least basic ethics
and compliance
systems
A 83.3
100
B 66.7
83.2
C 50.0
66.6
D 33.3
49.9
E 16.7
33.2
F 0
16.6

BANDING DEFINITIONS
Based on level of evidence
for basic anti-corruption
systems in place:
Band A: Extensive
Band B: Good
Band C: Moderate
Band D: Limited
Band E: Very limited
Band F: Little or none

Note
An asterisk by the
company name means
that they are one of
the companies that
shared internal company
information with TI. These
companies are scored
again based on this data
found on page 15.

10 Analysis

Analysis 11

Analysis
Companies can use
the evidence from this
study to develop a plan
for improvements in
their ethics and anticorruption systems.

Bands A and B
Of the 129 companies, ten score in Band A
or B, which means they have good, publicly
available evidence of having at least basic
ethics and anti-corruption compliance
systems in place. The group includes four
American companies (Fluor Corporation in
Band A, Hewlett-Packard Company, Northrop
Grumman Corporation and United Technologies Corporation), five European companies
(Accenture, BAE Systems, Meggitt, Serco
Group, Thales) and one Japanese company
(Fujitsu). Both publicly owned and privately
owned companies are represented.
Half of them are not ‘pure’ defence
companies – for example, Fluor (9% defence),
Accenture (3% defence), Fujitsu (1% defence)
and Hewlett Packard (0.8% defence). These
companies have valuable good practices
of anti-corruption procedures that may be
useful for the defence community.
Within Band B there is nonetheless
significant variation. Six companies publish
good information on three of the five pillar
areas – leadership, polices, and personnel
– but provide little to no information on the
other two areas: assessing corruption risk and
training. Few of the companies show public
evidence of sustained leadership engagement
promoting anti-corruption and ethics.
The companies in Bands A and B
demonstrate a number of good practices
and a strong dedication to ethics and
anti-corruption. Almost all combine a
values-based approach and a legal-based
approach. They focus on building strong
values – such as integrity, honesty,
accountability, and openness – across the
organisation. Additionally, they provide clear
rules, grounded in compliance with anticorruption laws.

It is clear from Fluor and the nine companies in Band B that there is no secrecy or
confidentiality bar to defence companies
publishing good information about their
anti-corruption systems on their websites.
Not disclosing, or hiding behind supposed
confidentiality of information, is clearly not
justified. As the key customers of defence
companies, taxpayers, investors and
governments have a legitimate expectation
to learn what mechanisms companies
apply to prevent corruption so that they
can monitor the company’s adherence
to these commitments.
We recommend that companies in
Band B upgrade their website disclosure
to Band A levels. Such clarity sends a
clear message to clients, to governments
and to the public about the company’s
commitment not to tolerate corruption.

12 Analysis

Analysis 13

Bands E and F

Bands C and D
There is a large block of companies in the
intermediate Bands C (34 companies) and
D (25 companies). Those in Band C score
just above 50 per cent – not poor, but
definitely not a good level of public disclosure; and those in Band D score above 33
per cent, signifying only limited disclosure.
To understand them better, we have analysed
these groups according to the five pillars of
1) Leadership, governance, and organisation;
2) Risk assessment; 3) Company codes and
policies; 4) Training; and 5) Personnel and
helplines. The average results across these
companies are shown below:
Overall Results

Band C

Band D

Leadership C D
Risk Management D
E
Company Policies C
C
and Codes
Training D E
Personnel
A
B
and Helplines
The analysis shows that both groups of
companies provide a good level of detail on
personnel and helplines, provide moderate
levels of disclosure on their company
policies and codes, disclose equally little on
risk management, and differ in what they
disclose about leadership and training.
The other distinguishing feature, which
may also reflect the difference noted above
on leadership, is that more than half of the
companies in Band C chose to participate
in our study by providing internal information (20 of 34), whilst only 7 of 25 from
Band D participated.

Almost half of the defence companies
are not able to publicly demonstrate that
they have basic anti-corruption systems
in place. This includes companies from
all the major arms exporting nations:
USA, Russia, Germany, France, the UK
and China. Sixty of the 129 the defence
companies score less than 33 per cent on
the basis of their public information, which
means they are ranked in Bands E or F.
Forty-seven of the 130 companies score
in the lowest of the six bands, Band F.
This means that they disclose little or no
information on the company’s basic
anti-corruption measures.
Some of the largest global exporters
are in Bands E and F. These include all nine
Russian companies and the three Chinese
companies included in the study. Additionally, it includes two of the six French
companies, Dassault Aviation and DCNS
(Band E); two German companies,
Rheinmetall (Band E) and Krauss-Maffei
Weggmann of Germany (Band F); Ultra
Electronics of the United Kingdom (Band E);
and several US companies. Others included
Navantia of Spain (Band E), Fincantieri of
Italy (Band E), Damen Schelde of The
Netherlands (Band F), Israel Aerospace
Industries and Israel Military Industries
(Band F), Patria of Finland (Band E) and
RUAG of Switzerland (Band E).
We recommend that the CEOs of the
119 companies in Bands C to F use the
evidence from this study to inform and
develop a plan to improve their anticorruption systems, and upgrade the
disclosure of these on their websites.

It is important
that defence
companies
from rapidly
growing arms
exporting
countries
meet global
standards of
anti-corruption.

Smaller arms exporters
The defence industry has an unusual
global structure. The major arms exporting
companies are concentrated in just a small
number of countries. According to SIPRI,
exports from the top six countries – USA,
Russia, Germany, France, UK and China
– account for 79 per cent of international
defence sales, and the top twelve countries
– including Spain, Netherlands, Italy, Israel,
Sweden and Ukraine – account for 94 per
cent of international defence sales.2
At the same time, because of the
strategic nature of the defence sector, many
other countries have significant national
arms industries, and an increasing number
of them are seeking to expand domestic
arms production into international arms
markets. In order to capture this growing
branch of the defence industry, our survey
includes companies from 31 countries.
These included countries such as Brazil,
Bulgaria, Czech Republic, Egypt, India,
Malaysia, Pakistan, Poland, South Korea,
Turkey and United Arab Emirates.3
Some of these additional companies
are clearly aware of the subject of ethics
and compliance – for example they publish
annual reports that state their stance
against corruption or how they regulate gifts
and hospitality. However, the majority either
publish very limited information on their
anti-corruption programmes, or do not
demonstrate any public evidence of such
programmes. Most of these companies
score relatively poorly: of the 27 companies
in this group, 23 are in Bands E to F.
Companies from these nations are playing
a major and increasing role in selling arms
around the world. They also often act as
partners or suppliers to the largest arms
exporters. It is therefore crucial that they
meet global anti-corruption standards.
Both the national governments and defence
company joint-venture partners should insist
that these companies strengthen their
anti-corruption standards.

Many of these smaller companies in our
survey are participants of the UN Global
Compact or are headquartered in countries
that have ratified the OECD Anti-Bribery
Convention: memberships that carry
obligations for reporting on anti-corruption
practices. Therefore there is no discernible
barrier preventing all these companies from
publishing more information to demonstrate
their commitment against corruption.
It is important that defence companies
from rapidly growing arms exporting
countries meet global standards of
anti-corruption. We recommend they
implement improvement plans to
upgrade their anti-corruption practices
and commit to higher levels of transparency. Their government customers (and
sometimes owners) should demand
higher anti-corruption standards from
these companies to ensure they are
getting the best value for money.
Specialisation on defence products
The 129 companies range from those that
are highly focused on the defence sector,
with more than 80 per cent of sales
originating from defence (e.g. General
Dynamics, BAE Systems and Patria),
through to companies with less than 5 per
cent defence sales (e.g. Accenture, Fujitsu
and ThyssenKrupp). Analysis of the
results by defence specialisation shows
that disclosure is generally better in
those companies that are not focused on
defence products.
Company ownership
Publicly owned companies have better
disclosure than private companies, who
in turn have better disclosure than state
companies (54 per cent, 10 per cent and
0 per cent respectively in Bands A to C).

14 Analysis

Analysis 15

Bandings for 34 companies which
provided internal information
A principal purpose of this
study is to understand the actual
anti-corruption systems that
companies have in place.

For each company
that provided internal
information, we show
their band based on
public information
only (the same data
as already shown),
together with what
their score would
be if the companyinternal information
reviewed by TI-UK
were made public.

Company Public Information Internal & public
Information
BAE Systems

B

B

Bechtel Corporation

C

A

Boeing

C

A

Chemring group

C

B

CSC

C

B

Cubic corporation

D

C

Daewoo Shipbuilding & Marine Engineering

D

C

Day & Zimmerman

C

A

Diehl Stiftung & CO. KG

D

C

DynCorp International

C

A

FLIR systems

D

C

Fluor corporation

A

A

Fujitsu

B

A

General Electric Aviation

C

B

Harris Corporation

C

A

Hewlett-Packard Company

B

A

Honeywell International

C

A

Indra Sistemas, S.A.

C

B

Jacobs Engineering

C

B

KBR INC.

C

A

Kongsberg GRUPPEN ASA

C

B

Lockheed Martin

C

A

Meggitt

B

A

Mitsubishi Heavy Industries

E

C

MTU Aero Engines

D

B

NEC Corporation

D

B

QinetiQ GROUP

C

B

Raytheon COMPANY

C

A

Rockwell Collins

C

A

Saab AB

C

B

SAIC

C

B

Serco GROUP

B

A

Thyssen Krupp AG

C

A

TognuM

D

C

16 Analysis

Analysis 17

The opportunity to review
company-internal or confidential
information helps to understand
how commitment against
corruption is embedded inside
the company.
A

The depth of engagement by defence
companies varied and was self-selected.
Some companies were committed to being
fully open about their systems; others
produced documents only on specific
information requests; and a few promised
additional materials but did not provide it.
The company-internal information that
we reviewed includes documents such as
the following: training logs, training
materials and videos, compliance handbooks and accompanying guidance notes,
risk assessment methodologies and results,
codes of conduct for suppliers, terms and
conditions for agents, due diligence questionnaires for agents, internal compliance

D
–

0 Companies

auditing procedures and plans, board
minutes, submissions to the Board, CEO
and leadership speeches, internal videos,
newsletters and emails.
What characterises the companies
providing company-internal information?
They are, of course, not a random sample.
They are mostly companies that already have
the better disclosure practices. They will be
seeking recognition of their actual systems.
Nevertheless, they all demonstrate
openness, and this is to their credit.
Working with an external civil society
organisation, without any control over
the results, also demonstrates leadership.
Such leadership on ethics and anti-corruption

E
–

0 Companies

will be one of the features that distinguishes successful defence companies from the
others. We encourage all other defence
company CEOs also to make known both
internally and externally their anti-corruption commitment.
Reviewing company-internal information
of this nature has a major limitation because
it is not available for public scrutiny. It is for
this reason that the main index produced
for this report is based on public information
only. TI-UK believes that transparency is
a fundamental component for citizens,
governments, investors, and activists to
hold companies accountable for their
actions and commitments.

F

0 Companies

–

This table shows the band for each
company that provided internal
information. It is based on what their
score would be if the companyinternal information were made
public. The letter in parenthesis
represents the company’s band
based on public information only.

18 Analysis

Defence leaders
are not speaking out
on the importance
of ethics and anticorruption in their
industry, even
among good-practice
companies.

Analysis 19

The results show that including companyinternal information makes a significant
difference to the results: with the inclusion
of internal information, the companies on
average would have improved their score
by between one and two bands. Thus, most
companies that are in Band C, based on
public information only, would move up to
Bands A or B, whilst most of those in Band
B would move up to Band A.
To understand this better, we have
analysed the effect of internal information
across the five pillars of ethics and anticorruption systems. The results are shown
in the table to the right, ordered by how
much the results changed in each category.
Leadership, organisation and monitoring
improve by only one band on average from
an already low starting point. This is a big
surprise and a disappointment. The two
most critical questions in this pillar are
whether there is evidence of strong CEO
leadership on the importance of ethics and
anti-corruption, both internally within the
organisation and externally. These questions
do not shift greatly in score upon review of
internal information. The answer, mostly,
is that there is little more internal evidence
from these companies than what is already
publicly available.

Personnel policies and helplines do not
change at all with the provision of internal
information. Almost all companies already
have substantive information about
personnel policies related to ethics and
corruption on their websites, and there is
not much internally that adds to that. The
only area where companies score poorly is
the question on whether companies formally
declare their conflicts of interest. Whilst
many companies publish information on how
they define conflicts of interest, very few
then document how an employee should
report this information and how senior
management should use this information
to determine if a conflict exists.
Codes and Policies change by one band.
The impact of participation on the average
scores is relatively modest, companies on
average change by one band though
significantly this does not improve to Band
A. This is disappointing as reporting on
anti-corruption codes and policies is hardly
a new practice. This indicates that overall,
most companies have a relatively good
public disclosure on only some anti-corruption policies and codes. But there are still
many policy areas, such as facilitation
payments and lobbying, that companies
have a significant scope to improve.

B +2
A
+3
+1

Training improves by two bands. This
is uniform across most of the companies â&#x20AC;&#x201C;
they apparently disclose much less on
training in ethics and anti-corruption than
they are actually doing. In particular,
companies do not disclose very much
information on how they target or customise
their training for those employees most
at-risk of corruption, such as those in
procurement or sales.
Risk management shows the greatest
improvement from internal information,
moving a massive three bands from a
Band D to a Band A score. Most companies
who participated achieve Band A. This looks
in part like a simple disclosure gap â&#x20AC;&#x201C; companies have the procedures but do not make
them public. Companies with better practices
were explicit in their belief that risk management constitutes a competitive advantage.

20 Good Practice

Good Practice 21

Good Practice
Repeatedly emphasising
to employees that
corruption will not be
tolerated across the
company is a central
ingredient in preventing
corruption before it
happens, and much
more convincing
than apologising if
or when it does.

TI-UK detailed a few examples of good
practice on anti-corruption systems in both
public disclosure and company-internal
information. This section presents a few
examples drawn from both of these data
sources. More are available on the website
at: www.defenceindex.org
Leadership
Leadership plays a central part of setting
the expectations of acceptable behaviour
across the company and of how the industry
is viewed by society. Speaking out demonstrates conviction, it can move a whole
industry, and it is more powerful in motivating employees than the easier internal
messaging. Whilst CEOs may feel exposed
talking so publicly about corruption, this
should not be an excuse not to speak out.
Such external engagement–for example,
at industry conferences and to the media
– demonstrates to governments, the public
and other companies that corruption will
not be tolerated.
However, very few defence companies
show significant evidence of external
leadership. A surprisingly low 13 out of
129 CEOs demonstrate strong external
engagement outside the company against
corruption. This is a very small number.
Example of good practice:
Good examples of external leadership
include Accenture’s CEO upholding the
principles of the UN Global Compact;
Fluor’s CEO addressing corruption at the
2012 World Economic Forum Meeting in
Davos; and a Thales interview with its
CEO discussing Thales’s involvement on
anti-corruption platforms such as the
G20 in its 2011 Corporate Responsibility
Report. Such examples, however, are
too few and far between.

Organisation and Governance
A key element of any good ethics and
compliance systems is a monitoring and
updating process to ensure the continued
effectiveness of the system. Good practice is
where the company both periodically reviews
the whole programme in detail and does
frequent monitoring of specific parts of it.
Example of good practice:
ThyssenKrupp AG and BAE Systems are
the only companies we are aware of in
the survey that commissions an annual
assessment from an outside organisation
of the strengths and weaknesses of its
full compliance and ethics programme
and go so far as to publish this documentation. In the case of ThyssenKrupp AG,
the outside assessment organisation is
rotated each year, for example between
an accounting firm and a legal firm.

22 Good Practice

Good Practice 23

Policies and Codes
Making anti-corruption policies clear:
Some companies make their anti-corruption policies very clear. The policies are
written in straightforward, accessible
language that defines what corruption is,
applies them to both government and
non-government officials, and are not
solely couched in legal jargon.
Some companies do not make their Code
of Conduct and their associated policies
public. TI-UK believes that this is unacceptable practice – companies must publish their
Codes of Conduct in keeping with the spirit of
a serious approach to good business conduct.
Codes of Conduct vary widely in terms of
length, ease of reading and CEO engagement.
Many are written in legal language, seemingly
written by and for lawyers. These codes tend
to focus on compliance with the law. Legal
language, however, does not always provide
clear and straightforward policies for
employees to follow. Dense legal language
can often be confusing or inaccessible to
employees who are not familiar with the law.
This can make it very difficult for employees
who are looking for clear and practical
guidance to navigate complex grey areas,
such as conflicts of interest.
On the other hand, some of the best
performers use clear language and appropriate detail to allow employee and advisers
to see clearly what was and was not
acceptable, even if they also have legal
language in their policies.
Example of good practice:
Fujitsu’s Code of Conduct has a clear list
of red flags or “warning signs” that may
indicate a payment is corrupt, such as
when an agent “asks for an unusually
large fee or an increase in a previously
agreed fee to close the deal.”

Risk Management
Assessing corruption risk is an important
part of any proper ethics and compliance
system. There are multiple risks that are
associated with conducting defence deals.
Risks differ with each business deal, in
different countries, in different product
areas and with different joint venture
partners. Understanding where the risk
lies also enables companies to develop
and put in place sufficient contractual and
monitoring terms to apply high anti-corruption standards to third parties, such as
agents and suppliers.
This is an area where there is almost no
publicly available information from companies. One reason for this gap could be that
publicly disclosing risk management
procedures is a relatively new practice. At
the same time, it is one of the key reporting
elements that UN Global Compact guides
companies to report on.4 In its guidance on
the 2010 UK Bribery Act, Transparency
International UK is emphatic that reporting
on risk assessment process is essential,
because it “will enable stakeholders to judge
material issues, form a view on whether the
company is managing the issues adequately
and if need be, enter into discussion with
the company if concerns arise.” 5
TI-UK received much more detailed
information and good practice examples
from the internal information provided by
companies. With the inclusion of internal
information, 27 companies have quite
sophisticated systems that review all ethics
and compliance risks on a regular basis, up
to six times per year. They have templates
and methodologies for analysing the relative
severity of the risks so these can be
prioritised against one another. The risks
are prioritised and discussed at Board level
each year. Each risk is assigned to a senior
person, who is then responsible for taking
whatever action is needed to mitigate the
risk, and a timeline by which they need to
complete these actions (e.g. to update a
policy or provide a targeted training to an
at-risk employee group).

Agents: Many companies recognise that
agents pose a significant corruption risk to
companies. In these cases, good practice
includes conducting extensive due diligence
on potential agents. They then require
formal justification of the agent’s role and
the proportionality of the commission.
Finally, they require senior management
sign-off at headquarter level for all agent
contracts worldwide.
Example of good practice:
Some companies have particularly
comprehensive corruption risk assessment methodologies, including BAE
Systems, Boeing, General Electric
Aviation, Jacobs Engineering, Meggitt and
Daewoo Shipbuilding & Marine Systems.
Fluor Corporation summarises its risk
assessment process in its 2010 Corporate
Sustainability Report as the following: “We
utilize a formalized and systematic process
for assessing and monitoring the company’s business risks, including the
potential for corruption associated with
execution of capital projects around the
world. Our approach is designed to identify
what can go wrong and develop mitigation
strategies for eliminating such risks.”

Training
Training is a key component of mitigating
the company’s exposure to corruption risk.
Good practice companies keep training
“fresh” and relevant to employees so as to
derive the maximum possible benefit from
what is a time and resource intensive
exercise. Companies make use of real past
examples and create hypothetical scenarios
to bring to life real issues that employees
have or could face in the field.
Companies have to find a suitable balance
between face-to-face and online anti-corruption training. Face-to-face training is more
effective at imparting knowledge as it allows
employees to discuss questions and issues
in-depth, but it is costly. One way that
companies have chosen to prioritise the use
of face-to-face training is to provide customised anti-corruption training to employees in
the most sensitive and risky situations (e.g.
staff working in sales and procurement or in
countries that are perceived to have a high
level of corruption).
Example of good practice:
Raytheon provides an example of good
practice for anti-corruption training
programmes. Some of Raytheon’s training
is provided to all employees through video
vignettes based on actual cases, which
Raytheon argues is “powerful and relevant
for employees” (DII Best Practice Forum:
Tailoring Training to Address Trends 2011).
The “‘EthicSpace’ series provide short video
clips that tell stories about ethical concerns
faced by our employees. Episodes are
delivered to employees via email each
quarter and cover topics such as use of
social media, labour charging, competitive
intelligence, and reporting concerns”
(Corporate Responsibility Report 2011).
Raytheon conducts follow-up surveys and
small focus groups to improve the effectiveness of the training.

24 Actions

Actions 25

Actions
CEOs AND CORPORATE
LEADERS
CEOs and corporate leaders have
a fiduciary duty to protect their
companies, their employees and their
shareholders from the financial and
reputational repercussions of a
potential corruption case. They also
have an ethical duty to other stakeholders, to ensure that corruption
does not distort markets or enable
public funds to be squandered.

1.

Review your company’s ethics and
anti-corruption systems, comparing
them with the results of this study.
Require that an improvement plan be
put in place and review progress at
Main Board level. Review the information disclosed publicly by your company
so that your commitment is clear to all.
We suggest you aim to provide ‘Band
A’ level disclosure.
For the 85 companies in Bands
D to F, analyse why your company
demonstrates such limited evidence
of ethics and compliance systems,
and insist that substantive improvement plans be put in place.

2.

Commission an independent
external organisation to assess
annually your company’s total ethics
and compliance systems, and commit
to publishing the report.

3.

Speak up for industry-wide
improvements in ethics and compliance
standards in the defence sector. There
is much scope for more visible external
leadership and for multi-country
collaboration. Actively support IFBEC,
the new global defence forum for good
business and ethical conduct, and
make it the leading sector example
of pro-active corporate behaviour.

4.

Commit your company to engage
with stakeholders who promote
transparency and accountability of the
defence sector. Be active in the next
phase of this study. Ensure that your
Heads of Ethics and Compliance
participate fully, and that progress
is regularly presented to your Board.

DEFENCE MINISTERS &
GOVERNMENT DEFENCE
PROCUREMENT CHIEFS

INSTITUTIONAL
INVESTORS

CIVIL
SOCIETY

This study provides vital information
for governments, showing how and
where defence contractors may be
able to improve individually and in
driving industry-wide improvement.

Investors desire to protect their
investment. It is in their interest to
assess the companies in which
they invest.

Civil society has the opportunity to
use this study to drive change and
improvement across the industry.

1.

We suggest that all Defence
Ministries and Governments review
this study and consider how they can
be more stringent in specifying
minimum anti-corruption standards
for all bidding companies.

2.

Governments owning stakes
in state or military-owned defence
companies should insist on major
improvements in ethics and compliance
practices from these companies.

1. Encourage all the defence companies

in whom they invest to be public about
their anti-corruption measures, and to
sign up for public reporting vehicles such
as the Global Reporting Initiative.

2.

Insist that the companies adopt
independent external review of their
anti-corruption programmes, and to
publish the results of the findings.

3.

Ask the CEO and the Chair of the
Board to explain personally what their
ethics and compliance systems are, and
why they do not rank higher in
this assessment.

1.

Campaign for better public
disclosure by all defence companies
in your country. Use this study as the
evidence base for what should be
expected of all defence companies.

2.

Meet the CEOs of the defence
companies active in your country and
discuss this report with him/her;
suggest a collaborative campaign to
make this sector the most transparent
industry sector in the country.

26 Endnotes

Follow Up and Thanks 27

Endnotes
1. As compiled from Defense News 2010
Top 100, SIPRI Top 100 Arms-Producing
and Military Services Companies 2010, and
defence companies’ own financial reporting.
2. According to SIPRI 2007-2011 data,
global arms exports come predominantly
from six nations: the USA (30%), Russia
(24%), Germany (9%), France (8%), the
United Kingdom (4%) and China (4%). These
six companies comprise 79% of global arms
exports. The next six (Spain, Netherlands,
Italy, Israel, Sweden and Ukraine) represent
a further 15%.
3. This data was compiled using SIPRI
Top 100 http://www.sipri.org/research/
armaments/production/Top100 and
company financial listings. For complete
list see Methodology document online
at www.defenceindex.org

Follow Up Thanks
4. For more information on the UN Global
Compact’s guidance on reporting procedures for risk management and other
anti-corruption areas, see the 2009 report
“Reporting Guidance on the 10th Principle
Against Corruption.” Reporting element
D-3 contains specific recommendations
on disclosing risk management procedures.
5. For more information see Transparency
International UK, Adequate Procedures –
Guidance to the UK Bribery Act 2010
http://www.transparency.org.uk/our-work/
bribery-act/adequate-procedures: “It is
good practice for the company to disclose
publicly its risk assessment process,
including the results of any stakeholder
consultations, to describe the significant
risks identified as well as the actions being
taken to mitigate the risks. Disclosure will
act as an impetus to risk assessment.
It will enable stakeholders to judge material
issues, form a view on whether the company
is managing the issues adequately and if
need be, enter into discussion with the
company if concerns arise. Finally, the
process of regular disclosure in itself
will encourage the company to strive for
improvement and to live up to its previous
commitments and targets.”

We welcome contact from defence
companies that want to improve their ethics
and compliance systems, and from companies that have updated their processes and/
or their website since this study was
finalised. Please contact TI-UK for any
further information or comments at
ci@transparency.org.uk.
More information, analysis and follow-up
from this study will be placed on our Index
website in the coming months.
TI-UK has commenced a second phase
of this study, using fifty-five more detailed
questions. This phase is aimed at further
identifying and spreading good practice
across the industry. TI-UK encourages
all the companies in this study, and other
defence companies who are interested, to
participate in this exercise. The questions
are available on the report’s website:
www.defenceindex.org
This Defence Companies Anti-Corruption
Index will be updated in two years time to
measure progress in the industry.

TI-UK would like to thank all the companies
and individuals who have encouraged us to
do this study. We would particularly like to
thank those companies that participated in
providing internal information. We appreciate that it has involved a ‘leap of faith’ on
their part and we hope that the result will
have the commonly desired effect of a
significant improvement across the whole
defence industry.
TI-UK would like to thank the UK
Department for International Development
for their generous support.

Reproduction in whole or in parts is
permitted, providing that full credit is
given to Transparency International UK
(TI UK) and provided that any such reproduction, whether in whole or in parts, is not
sold unless incorporated in other works.
Effort has been made to verify the accuracy
of the information contained in this report.
Nevertheless, Transparency International UK
cannot accept responsibility for the consequences of its use for other purposes or in
other contexts.
Disclosure of possible conflicts of interest:
General Electric Company is a corporate
supporter of the Transparency International
Secretariat and member of the TI-Secretariat’s Business Principles Steering Committee.
General Electric Company, Bechtel Corporation, Fluor Foundation, General Dynamics
Corporation, Lockheed Martin Corporation,
Raytheon Company and Northrop Grumman
Corporation are corporate supporters of
Transparency International USA. Transparency International UK has worked with
Meggitt plc. Transparency International
Germany has received support from
ThyssenKrupp AG and from Daimler Group.
Other companies covered in this report may
also provide support to Transparency
International Chapters worldwide. TI-UK and
external peer reviewers have recused
themselves from reviewing companies
where they have a connection.

“This comprehensive analysis of the major
defence companies from all over the world
examines what systems and processes they
have in place to prevent corruption. Its
purpose is to raise standards globally,
promote good practice in preventing
corruption, and increase transparency in the
sector. I very much hope that the industry
responds to the challenge.” Lord Robertson,
Former Secretary General of NATO
“Corruption’s potential to damage the
effectiveness and legitimacy of defence
companies and armed forces cannot be
overstated. This deep analysis of company
practices will be invaluable. It will drive
company improvement and will enable
governments to better see behind the veil
of corporate PR.” John Githongo, Inuka Kenya,
and former Permanent Secretary for Governance
and Ethics in the Office of the President, Kenya.

Transparency International UKâ&#x20AC;&#x2122;S
Defence and Security Programme
works to raise anti-corruption
standards in arms sales and
defence purchases. We work
with defence companies,
Defence Ministries, international
organisations, civil society and
others to advance this goal.
Our objective is to ensure that
stronger mechanisms are in place
to prevent corruption in defence.